Reference no: EM132944731

Gozem started operations on the 31st of December 2017, on which date it incorporated its holding company (CFA reporting and functional currency), with CFA 225m of cash raised from shareholders. - Gozem incorporated its Togo subsidiary on this same date, 31 st of December 2017, contributing CFA 125m in equity (cash). The operations in Togo function as a rental business, with Gozem purchasing vehicles, and leasing them out to drivers under an Operating Lease model. In its first year of operation, Gozem Togo acquired fixed assets of CFA 50m; it also purchased and deployed 50 vehicles. - The following year, Gozem incorporated its Benin subsidiary on the 31 st of December 2018, contributing CFA 10m in equity (cash). Gozem Benin also raised CFA 65m of debt locally. The intention was for Gozem Benin to provide financing to drivers directly, for them to purchase their vehicles. During its first year of operation, Gozem Benin acquired CFA 25m of fixed assets, and it financed 75 vehicles - Both Gozem Togo and Gozem Benin are 100% subsidiaries of Gozem Holding Company. All entities within the group have CFA as functional and reporting currency, and all have 31 st of December as financial year end - The operating entities (Gozem Benin and Gozem Togo) both pay a marketing fee to the Group, calculated as a fixed percentage of their revenues.

Problem 1: In January 2019, you attended a meeting with our Benin Country Manager, who expressed concerns that under IFRS, Operating Leases would not be available anymore, and lease operations in Benin should therefore be treated as Finance Leases. Discuss the implications of these changes on our financial statements.